A French banking revolution

29th July 2003, Comments 0 comments

The planned tie-up between the Crédit Agricole and Crédit Lyonnais has fired fresh specualtion in France of a banking sector merger revolution. Michèle Folian reports.

Back in 1999, the then-finance minister in the Socialist-led government, Dominique Strauss-Kahn, first envisaged the mega-merger scenario, arguing in favour of the creation of three French banking giants: Crédit Agricole-Crédit Lyonnais, BNP Paribas-Société Générale and Caisse des Dépôts-Caisse d'Epargne-La Poste.

The recent announcement of a tie-up between the Crédit Lyonnais and its main shareholder, the Crédit Agricole, could relaunch the momentum towards consolidation following the 1999 merger of BNP with Paribas, and trigger expansion beyond France.

"The creation of a new colossus in France is going to force the other big players in the banking sector to speed up up their thoughts on other tie-up possibilities," said Hugues Doumenc, bank analyst at French brokerage Fideuram Wargny.

"It would be logical as a reaction for BNP Paribas and the Société Générale to consider a merger, especially now that corporate banking is suffering, due to poor economic conditions," he said.

But after the 1999 battle in which they were rivals — the Société Générale wanted to merge with Paribas, BNP tried to take over Société Générale and Paribas and but ended up only with Paribas, not Générale - "such an operation is only imaginable in a friendly context," he said.

Apparently the initiative would have to come from the Société Générale's chief, Daniel Bouton, rather than from the head of BNP Paribas, Michel Pébereau. A source close to the Société Générale hinted that the bank's personnel would likely resist a Pebereau leadership saying: "When you mention a Pébereau at Générale - we've got a problem."

Before the attempted 1999 three-way merger between BNP, Paribas and Société Générale, Pébereau's brother Georges had tried, in 1988, to acquire the then-public bank Société Générale. But the hostile bid, backed by the Socialist government, failed.

"Besides that, the synergies, notably in investment banking, are no longer what they were in 1999, largely because of the progress made by BNP Paribas, for example in derivatives shares," the source said.

Moreover, the Société Générale now appears isolated among all the couplings in the French banking sector.

"The market anticipates that this bank will become the object of strong pressures and that is the reason for its strong share climb in the wake of the news of the offer for Lyonnais," Doumenc said.

Asked recently about Crédit Lyonnais, Pierre Richard, the president of the French-Belgian banking group which itself is considered as much a takeover target as a predator, predicted that "this sale was going to unleash a movement of banking restructuring in France and perhaps throughout Europe."

In Germany, Europe's largest economy, banking restructuring is still in the early stage.

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